For Oracle.Com, Tomorrow Already Here

Oracle division wants to free companies to concentrate on their strengths. president Tim Chou sees the world moving from a place where every company is an island with its own IT department running its own applications to a place where companies are connected not only with their trading partners but also with their software provider. Increasingly, the future is now for Chou, whose business, a unit of enterprise applications and database developer Oracle Corp., hosts the Oracle E-Business Suite of applications for some 200 customers. eWeek Department Editor John McCright and eWeek Senior Writer Matt Hicks recently spoke with Chou about the strengths and weaknesses of the hosted software model at Oracle headquarters in Redwood Shores, Calif.

eWeek: How has changed since you arrived two years ago?

Chou: Six months into [my tenure], I went to [Oracle CEO] Larry [Ellison] and said we could clearly run as a separate company, but the true value would be lost because what this is really about is morphing the software business from delivering its intellectual property on a CD and [saying to the customer], "Good luck" to delivering it as a service. Its better for customers as a service—its a far faster, far cheaper, far better service, and its a lower cost for us, too. Thats why it will change the entire software business.

eWeek: Its less expensive for you to run it than to let the buyer run it?

Chou: The true cost of software is in operation, maintenance, etc. We estimated there are 500,000 Oracle DBAs [database managers] in the world today. If you [estimate that each one] costs a company $100,000, that means people are spending $50 billion supporting, managing and operating Oracle software. Were not unique in this; the vast preponderance of cost in IT is not hardware and software, its the people to manage all this because software changes, software is not bug free.

eWeek: Has the typical Oracle. com customer changed?

Chou: We have 200 customers. We go from startups to large, multinationals like Cigna International [a unit of Cigna Corp.], for whom we consolidate 26 country systems to one system for the globe. It spans the range.

We were in New York [last month] to tell the world we were taking this mainstream. International Data Corp. backed us, saying we can do this 50 percent cheaper than the customer can do it, and we can deliver the service 50 percent better.

We tell our customers, "Our core competence is software, and you focus on burritos, banking or baking—whatever your business is."

eWeek: Doesnt each company customize the applications?

Chou: We have a standardized process called an Online Lifecycle. For guys that say, "I have this report that I need to run my business, and it is not part of the standard offering," we can add those in a standard way. If the guy says, "Ive got to have these 500 reports," we say, "No problem. Standard pricing does not apply; here is this other bill, and there is a bigger price to pay for upgrades."

We just translate it into money for them, which, at the end of the day, is what its really about.

eWeek: Did most of your customers previously use licensed Oracle applications?

Chou: A large percentage of our customers are new to Oracle apps, and they are new to outsourcing. Im talking about Oracles big E-Business Suite, $50 million companies and above. We do have the Small Business Suite. The value proposition of them is identical—a single piece of software that allows you to automate all business processes from soup to nuts.

eWeek: What have you learned from hosting applications? Whats next?

Chou: In E-Business Suite outsourced, what weve done is said that [there is a thing] you call application administration—figuring out how to tune the application, point-release upgrades, dealing with patches—and administering the database with the application—space management, capacity management—and administering the [operating] systems and administering the hardware—keeping the computers cool, keeping the lights on.

Traditionally, customers have [done all this administration]. Now, were saying we want to do all this [administration] for you better, faster, cheaper. We can do this in one of two models—we own the hardware or you do.

Now, lets assume [that the customer is] not running our application. No matter what application theyre running, we can help you out [with the database and application server administration]. This is [simply] supporting and managing our technology.

eWeek: Will this new database management service be targeted at any particular verticals or geographies?

Chou: At the end of the day, it comes down not to a technical issue—its a cultural issue. Today, every one of our E-Business Suite customers could live in this [hosted] model.

Will they? No—and it wont be because of a business or technical reason; it will be because of a cultural reason.